Chasing ultra low-cost products and services could prove detrimental when it comes to selling an advice business, experts have warned.
While there are implications in running a company on unsustainably high fees and charges, there are similar issues when charges are below a certain threshold.
Louise Jeffreys, managing director at mergers and acquisitions specialist Gunner & Co, explains buyers typically have propositions that sit between 1.4 per cent and 2 per cent all in, including platform, advice, investment management and funds.
"Therefore, if an adviser has focused on an ultra-low proposition, sometimes as low as under 1 per cent, it becomes tricky discussing the sale," she says.
"It therefore has an impact on the attractiveness of the firm, and also the sale strategy for the business seller."
She says where larger businesses can deliver economies of scale, clients typically will not be worse off post-sale if they sit in the 1.4-2 per cent range, but below that "things become much harder".
Under consumer duty, advisers have an obligation to provide fair value to their clients and there is evidence this is already weighing on their minds.
Almost a fifth of advisers told FE Fundinfo they now have a greater focus on value-for-money investments and more scrutiny on fees when looking for model portfolios or discretionary managers.
But this does not mean they should always be chasing the cheapest deals on offer.
Angus MacNee, chief executive of adviser network ValidPath, which runs its own succession solution, says: "It's very hard with a consumer duty hat on to see how that can work.
"So here you have a firm who may feel it's in their best interests to put clients into these lower-cost solutions, but by doing so adversely affects [its] ability to sell. That's not a good little market dynamic."
Cheap as chips?
Lawrence Cook, who runs discretionary fund manager comparison service Mabel Insights, says it is easy to access "cheap as chips" investment solutions these days but he too cautions against blindly opting for the cheapest products.
He says: "Ultimately, most IFAs are going to end up selling their business either through some internal management buyout, succession plan or to a bigger acquirer.
"The bigger acquirers will tend to have their own investment solution.
"So if you, as the seller, you've driven down the price and that's been your focus of your proposition to get it as cheap as possible, then typically what those IFAs have done they've not trimmed their own advice charge. What they've done is look for the investment solution that's cheapest.
"The problem with that is that when you come to sell, if the acquirer has got its own investment solution, which is more expensive than one that you've been using, that's going to be very difficult to move clients from A to B. It's not impossible but it's very, very difficult," Cook continues."
